(Bloomberg) -- Japan’s labor market tightened in September, indicating sustained pressure on companies to raise wages ahead of the Bank of Japan’s policy meeting this week.
The job-to-applicant ratio edged up to 1.24 from 1.23 in August, meaning that there were 124 jobs offered for every 100 applicants, the labor ministry reported Tuesday. Economists had forecast no change from 1.23.
A separate report from the ministry of internal affairs showed that the jobless rate decreased to 2.4% in September, falling to the lowest since January. The number of workers rose by 270,000 from a year ago, while those without jobs decreased by 90,000.
The tight labor market is a positive environment for the central bank as it prepares for its policy meeting concluding Thursday. Higher demand for workers will pressure companies to hike salaries to retain them, potentially feeding into the virtuous cycle between prices and wages — a goal that the bank seeks as it mulls its next interest rate hike.
“The job market will continue to put upward pressure on wages,” said Kengo Tanahashi, economist at Nomura Securities. “It’s one piece of the puzzle that would let the BOJ say that it’s on track” to meet its projections.
While economists mostly see an additional hike either in December or January, the BOJ is widely expected to keep rates unchanged on Thursday. Governor Kazuo Ueda said last week that the central bank has time to consider its next policy steps, signaling no rate hike in October, even as the yen fell to an almost three-month low. In the latest Bloomberg survey, almost all economists anticipated no changes this time, while half expected action in December.
At the end of the two-day meeting, the BOJ will also release its updated outlook report. In the latest issue in July, the bank noted that increasing labor participation among women and the elderly would tighten the labor market during the course of the economic recovery. Tuesday’s report showed an increase of 430,000 female workers from a year earlier.
The positive numbers come after Prime Minister Shigeru Ishiba and his ruling party suffered crushing results in the lower house election on Sunday. Shortly after the vote, Ishiba said that he needs to implement a meaningful economic package and put together an additional budget. The measures will include support for small and medium-sized companies to hike salaries and adopt labor-saving technologies, he said.
The solid job market will also have a positive implication for wage negotiations next year, which began earlier this month. Japan’s largest labor union federation Rengo announced that it will aim for at least a 5% wage hike in the upcoming talks, maintaining its goal from the current year.
This year the group secured a 5.1% pay increase, the highest in 33 years. Some firms, including Suntory Holdings, have already indicated that they will strive for similar pay hikes as this year, marking a positive kick-off for the next round of talks.
Meanwhile, labor shortage is becoming increasingly more severe, particularly among small-and-medium sized firms. Japan saw the highest number of bankruptcies since 2013 in the six months through September, with some 163 of the 4,990 bankrupted firms citing manpower constraints as a reason for going under. Rengo announced they will seek pay hikes of at least 6% for smaller firms, a goal that could further strain companies’ already inflation-squeezed profit margins.
(Updates with economist comments, more background.)
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